Suppose there are two goods, the prices of both goods are positive, and a consumer’s
income is also positive. If the consumer’s income doubles and the price of both goods
triple,
the consumer’s budget line gets steeper and shifts inward.
the slope of the consumer’s budget line does not change but the budget line shifts
outward away from the origin.
the consumer’s budget line gets steeper and shifts outward.
the slope of the consumer’s budget line does not change but the budget line shifts
inward toward the origin.
the consumer’s budget line gets flatter and shifts inward.
If there are only two goods, if more or good 1 is always preferred to less, and if less of
good 2 is always preferred to more, then indifference curves
slope downward.
slope upward.
may cross.
could take the form of ellipses.
None of the above.
During the height of the pet rock craze in the 1970s, the price elasticity of demand was
estimated to be 1.80. Since pet rocks have a marginal cost of zero, a profit-maximizing
seller of pet rocks would
leave prices unchanged.
decrease prices.
increase prices.
need more-detailed market information before making any pricing changes.
diversify into selling Karen Carpenter LPs.
Which of the following is the best example of a public good as follows?
Cable television
Day care
Radio broadcasts
Medical care
Disneyland
While traveling abroad, Tammy spent all of the money in her purse to buy 5 plates of
spaghetti and 6 oysters. Spaghetti costs 8 units of the local currency per plate and she
had 82 units of currency in her purse. If s denotes the number of plates of spaghetti and
0 denotes the number of oysters purchased, the set of commodity bundles that she
could just afford with the money in her purse is described by the equation
8s + 6o = 82
6s + 8o = 82
8s + 7o = 82
5s + 6o = 82
There is not enough information to determine the answer
Toby Talkalot subscribes to a local phone service that charges a fixed fee of $10 per
month and allows him to place as many local phone calls as he likes without further
charge. Let good 1 be an aggregate of commodities other than local phone use and let
good 2 be local phone use. (Measure good 1 on the horizontal axis and good 2 on the
vertical axis.) On Monday, Toby didn’t use the telephone at all. The slope m of his
indifference curve at the consumption bundle he chose on Monday was
positive.
less than or equal to 0.
0.
greater than or equal to 0.
negative.
Madonna buys only two goods. Her utility function is Cobb-Douglas. Her demand
functions have which of the following properties?
Her demand for one of the two goods does not depend on income.
Her demand for neither good depends on income.
Her demand for each of the goods depends on income and on the prices of both
goods.
Her demand for each of the two goods depends only on her income and on the price
of that good itself.
One of the goods is an inferior good and the other is a normal good.
Which statement listed as follows is true?
A situation where everyone is playing a dominant strategy must be a Nash
equilibrium.
In a Nash equilibrium, everyone must be playing a dominant strategy.
A two-person game in which each person has access to only two possible strategies
will have at most one Nash equilibrium.
In the prisoner’s dilemma game, if each prisoner believed that the other prisoner
would deny the crime, then both would deny the crime.
If a game does not have an equilibrium in pure strategies, then it will not have an
equilibrium in mixed strategies either.
Ella’s utility function is min {5x, y}. If the price of x is $20 and the price of y is $20,
how much money would she need to be able to purchase a bundle that she likes as well
as the bundle (x, y) = (7, 15)?
$440
$360
$177
$372
$72
Which statement listed as follows is true?
In a perfect asset market, it is known with certainty that an asset will sell for $24 in
one year. If the annual interest rate is 10%, then the asset will sell for $26.40 right
now.
Suppose that the cost of cutting down a tree is zero and the tree grows on land that
is useless for anything else, that the interest rate is constant, and that the price of
lumber does not change. The optimal time to cut the tree is when the difference
between its growth rate and the interest rate is maximized.
If the interest rate is 10%, then an asset that returns $1 a year forever is worth
$1/1.1.
The interest rate is 10% and there is no inflation. A bond is available that can be
redeemed either after one year or after two years. If it is redeemed after one year,
the investor gets $110. If it is redeemed after two years, the investor gets $117.70.
The investor gets no other payments than what she receives when she redeems the
bond. In equilibrium, investors will be willing to pay more than $100 for this bond.
According to the theory of asset markets, if the interest rate is constant, then the
competitive market price of a bottle of wine will rise at a constant rate per year
until it is consumed, even if the amount that wine drinkers are willing to pay for it
does not rise at a constant rate.
The market for tennis shoes had a horizontal supply curve and a linear,
downward-sloping demand curve. Currently the government imposes a tax of t on
every pair of tennis shoes sold and does not tax other goods. The government is
considering a plan to double the tax on tennis shoes, while leaving other goods untaxed.
If the tax is doubled, then
the total deadweight loss caused by the doubled tax will be exactly twice the
original deadweight loss.
the total deadweight loss caused by the doubled tax will be more than twice the
original deadweight loss.
the total deadweight loss caused by the doubled tax will be less than twice the
original deadweight loss.
to know if doubling the tax would more than double the deadweight loss, we would
have to know the slope of the demand curve.
None of the above.
Which statement listed as follows is false?
The marginal product of a factor is just the derivative of the production function
with respect to the amount of this factor, holding the amounts of other factor inputs
constant.
If the price of the output of a profit-maximizing, competitive firm rises and all other
prices stay constant, then the firm’s output cannot fall.
If a profit-maximizing competitive firm has constant returns to scale, then its
long-run profits must be zero.
A fixed factor is a factor of production that is used in fixed proportion to the level
of output.
A consumer prefers more to less of every good. Her income rises, and the price of
one of the goods falls while other prices stay constant. These changes must have
made her better off.
On a certain island there are only two goods, wheat and milk. The only scarce resource
is land. There are 1,000 acres of land. An acre of land will produce either 3 units of
milk or 7 units of wheat. Some citizens have lots of land; some have just a little bit.
The citizens of the island all have utility functions of the form U(M,W) = MW . At
every Pareto optimal allocation,
the number of units of milk produced equals the number of units of wheat
produced.
all citizens consume the same commodity bundle.
every consumer’s marginal rate of substitution between milk and wheat is −1 .
total milk production is 1,500 units.
None of the above is true at every Pareto optimal allocation.
Which statement listed as follows is true?
With quasilinear preferences, the slope of indifference curves is constant along all
rays through the origin.
Maximilian consumes two goods, x and y. His utility function is
U(x, y) = max{x, y}. Therefore x and y are perfect substitutes for Max.
Mark strictly prefers consumption bundle A to consumption bundle B and weakly
prefers bundle B to bundle A. These preferences can be represented by a utility
function.
A competitive firm is choosing an output level to maximize its profits in the short run.
Which of the following is not necessarily true? (Assume that marginal cost is not
constant and is well defined at all levels of output.)
Marginal cost is at least as large as average variable cost.
Total revenues are at least as large as total costs.
Price is at least as large as average variable cost.
Price equals marginal cost.
The marginal cost curve is rising.
If there is perfect certainty, a competitive firm will necessarily
seek to maximize its immediate profits rather than long-run returrns because
otherwise it will go broke.
maximize the ratio of the present value of its sales to the present value of its costs.
equalize its profits in all periods.
equalize its sales in all periods.
None of the above.
A firm uses only two inputs to produce its output. These inputs are perfect substitutes.
This firm
must have increasing returns to scale.
must have constant returns to scale.
could have increasing returns to scale, constant returns to scale, or decreasing
returns to scale.
must have decreasing returns to scale.
must have decreasing returns to scale in the short run and constant returns to scale
in the long run.
A monopolist finds that a person’s demand for its product depends on the person’s age.
The inverse demand function of someone of age y can be written p = A( y) − q , where
A( y) is an increasing function of y. The product cannot be resold from one buyer to
another and the monopolist knows the ages of its consumers. If the monopolist
maximizes its profits,
older people will pay higher prices and purchase less of this product.
older people will pay higher prices and purchase more of this product.
older people will pay lower prices and purchase more of this product.
everyone will pay the same price but older people will consume more.
None of the above.
Which statement listed as follows is true?
If the average cost curve is U-shaped, then the marginal cost curve must cross the
average cost curve at the bottom of the U.
The marginal cost curve passes through the minimum point of the average fixed
cost curve.
Average cost can never rise while marginal costs are declining.
The area under the marginal cost curve measures total fixed costs.
Average fixed cost curves will be U-shaped if the marginal cost curve is upward
sloping.
Which statement listed as follows is true?
A person’s full income is the amount of income that he or she would have if there
were no taxes
If all goods, including leisure, are normal goods, then an increase in the wage rate
will necessarily make people want to work more hours.
If a person has no nonlabor income, a decrease in wages causes the budget line
between leisure and other goods to shift downward in a parallel fashion.
If leisure is a normal good, then an increase in nonlabor income will reduce labor
supply.
None of the above.
If the demand function is q = m− 2(ln p) over some range of values of p, then at all
such values of p, the absolute value of the price elasticity of demand.
increases as p increases.
decrease as p increases.
is constant as p changes.
increases with p at small values and decreases with p at large values.
decreases with p at large values and increases with p at small values.
Which statement listed as follows is false?
Third-degree price discrimination occurs when a monopolist sells output to
different people at different prices but every unit that an individual buys costs the
same amount.
A monopolist who is able to practice third-degree price discrimination will make
greater profits than a monopolist who is able to practice first-degree price
discrimination.
In a monopolistically competitive industry with zero profits, each firm will produce
less than the amount that minimizes average costs.
In order to maximize his profits, a monopolist who practices third-degree price
discrimination with two or more markets should charge higher prices in markets
with more inelastic demand functions.
A profit-maximizing dairy farm is currently producing 10,000 gallons of milk per day.
The government is considering two alternative policies. One is to give the farm a lump
sum subsidy of $500 per month. The other policy is to give the farm a subsidy of $.05
per gallon of output.
Both kinds of subsidy will increase production at this farm.
Neither subsidy will affect production at this farm, since output is determined by
profit maximization.
Production at this farm will be increased if the per-unit subsidy is adopted but not if
the lump sum subsidy is adopted.
Which subsidy has the greater effect on production at this farm depends on whether
fixed costs are greater than variable costs.
Production will be increases by either kind of subsidy if and only if there are not
decreasing returns to scale.
The demand curve for rutabagas is a straight line with slope 23 and the supply curve is
a straight line with slope 2 Suppose that a new tax of $3 per sack of rutabagas is
introduced.
The total number of rutabagas purchased increases.
The price paid by demanders rises by the same amount as the price received by
suppliers falls.
The price received by suppliers falls by more than the price paid by demanders
rises.
The price paid by demanders rises by more than the price received by suppliers
falls.
The price paid by demanders rises by more than $3.
Which statement listed as follows is true?
If there are negative externalities in production or consumption, competitive
equilibrium is unlikely to be Parete efficient but positive externalities enhance the
efficiency of the market.
The efficient amount of air pollution is in general independent of whether polluters
or pollutees pay to reduce pollution.
The only known way to eliminate externalities is through taxes or subsidies.
A trade between two people is an example of an externality.
If your consumption of toothpaste produces positive externalities for your
neighbors (which you ignore), then you an consuming less toothpaste than is Pareto
optimal.
An economist giving a lecture mentions that positive net investment creates growth in
capital equipment, which increases worker productivity. In this statement a flow
variable is ________ and a stock variable is ________.
net investment; capital
capital; productivity
productivity; net investment
capital; net investment
productivity; capital.
Some (but not all) national income accounting data (in billions of dollars) for a
hypothetical country are as follow: Government purchases of goods and services = 250,
Compensation of employees = 1675. Gross private domestic investment = 325, Rental
income = 20, Personal consumption expenditures = 1425, Net interest = 40. Net
exports of goods and services = 100, Indirect business taxes and depreciation = 300.
According to these data, the value of GDP is ________ billion.
$2100
$1850
$2000
$2050
$1900
Which of the following statements is INCORRECT?
The labor force is equal to the number of people employed plus the number of
people unemployed.
The working age population includes everyone over the age of 16.
The unemployment rate is the number of persons who are unemployed divided by
the labor force then times 100.
The labor-force participation rate is the labor force divided by the working-age
population then times100.
Discouraged workers is not included in the working-ago population.
Which of the following people would be considered unemployed?
A part-time worker who wishes to work full time.
A person who gave up looking for jobs because he or she was discouraged about
his or her job prospects.
A person who has been searching for work, but turns down a job paying a lower
wage rate than desired.
A person who is working but expects to be laid off at the end of the month.
A person who performs traditional housework but does not work outside the home
for pay.
Which of the following shift the LAS curve rightward?
A increase in the education level of the labor force.
A decrease in the labor force.
A decrease in the money wage.
An increase in the price level.
The price level and the money wage rate fall in the same proportion.
Which of the following increases aggregate demand and shifts the AD curve
rightward?
a fall in the price level.
a decrease in the money supply that raise the interest rate.
predictions of a recession that lead to expectations of lower future income.
an increase in the foreign exchange rate that makes imports less expensive.
an expectation that inflation will be higher in the future.
Which of the following will create a movement along the production function? I an
increase in human capital II. an increase in physical capital III. and increase in labor
input IV. a decrease in leisure time
I only.
I and II.
III only.
I, II and III.
III and IV.
An efficiency wage is a wage
that reduces unemployment to zero.
at which there are no discouraged workers.
that is the equilibrium wage only when the economy is producing at its potential
GDP.
such that the quantity of labor demanded exceeds the quantity of labor supplied.
none of the above answer is correct.
If government saving is negative (that is, if government is running a budget deficit),
crowding out may occur. Crowding out leads to all of the following EXCEPT
a higher real interest rate.
a decreases quantity of investment.
a smaller capital stock in the future.
decrease private saving.
a higher nominal interest rate.
The Ricardo-Barro effect holds that
equal increases in taxes and government purchases have no effect on equilibrium
real GDP.
government budget deficits have no effect on the real interest rate.
a government budget deficit crowds out private investment.
a government budget deficit induces a decrease in saving that magnifies the
crowding out effect.
government deficits lead to simultaneous decreases in private saving and decreases
in the equilibrium real interest rate and investment.
Which of the following would lead to a shift in the productivity curve?
There are large technological advances.
The quantity of capital in the economy increases.
An increase in the number of factories in a country.
The employment increases and the quantity of capital stays the same.
None of the above answer is correct.
Suppose capital per hour of labor grows at 1.0 percent per year and technological
change grows at 2.0 percent per year. Using the one third rule, the growth rate of real
GDP per hour of labor is ________ percent per year.
3.0
9.0
4.33
2.33
1.0
New growth theory economists believe that I. Economic growth can continue as long
as we keep finding new ideas. II. The marginal product of capital diminishes very
rapidly, so we must rely upon technological advances to create economic growth. III.
The growth rate of the capital stock is more important than the growth rate of new
knowledge in generating economic growth.
Both I and III
Both II and III
Both I and II
I only
II only Answer
Which of the following statement is CORRECT?
Components of aggregate expenditure include saving, consumption expenditure,
investment and government purchases.
If the change in autonomous investment equals $1 trillion and the change in real
GDP equals $4 trillion, the multiplier equals 1/4.
In the short run, an upward shift in the aggregate expenditure curve leads to a
leftward shift in the short-run aggregate supply curve.
The multiplier in the short run is greater than the multiplier in the long run.
If the change in autonomous equals $1 trillion and the change in real GDP equals
$4 trillion, the multiplier equals 5.
Which of the following is/are a limitation of fiscal policy? I. There is a lag between
recognizing that fiscal policy might be needed and when it actually takes effect. II. It is
difficult to know where the economy is in relation to potential GDP. III. Monetary
policy might counter fiscal policy. IV. The President may have different goals from
Congress.
I only.
I and II.
I and III.
I and IV.
I, II and IV.
A bank with $1 billion in deposits bolds $70 million in cash, $80 million on deposit
with the Fed, and owns $100 million in government securities. If a reduction in the
required reserve ratio generates excess reserves of $30 million, and prior to the change
the bank had no excess reserves, then the initial required reserve ratio was ________
and the new required reserve ratio is ________.
15 percent; 10 percent
15 percent; 12 percent
25 percent; 22 percent
25 percent; 20 percent
25 percent; 12 percent
If the Central Bank of the R.O.C. wants to increase the quantity of money, it can
raise the required reserve ratio.
sell government securities in the open market.
instruct banks to print more money.
buy U.S. dollars on the foreign exchange market.
raise the discount loan ratio.
Which of the following decreases the demand for nominal money?
a decrease in the nominal interest rate.
an increase in real GDP.
an increase in the cost of using automatic teller machines.
an increase in the price level.
an improvement in the payment system.
Demand-pull inflation could start with
increases in government purchases followed by increases in money wage rates.
expansionary monetary policy followed by decreases in the money wage rate.
rises in prices of raw materials followed by expansionary monetary policy.
simultaneous expansionary aggregate demand and aggregate supply shifts.
increases in oil prices followed by increase in money wage rates.
A movement along the SAS curve that brings a lower price level and a decrease in real
GDP is equivalent to a
movement along a short-run Phillips curve that brings a decrease in the inflation
rate and an increase in the unemployment rate.
movement along a short-run Phillips curve that brings an increase in the inflation
rate and an increase in the unemployment rate.
shift in the short-run Phillips curve that brings a decrease in the inflation rate and an
increase in the unemployment rate.
shift in the short-run Phillips curve that brings an increase in the inflation rate and
an increase in the unemployment rate.
None of the above answer is correct.
Both new Keynesian and new classical theories of the business cycle claim ________.
that volatile expectations can trigger a business cycle.
that shifts in the SAS curve are the main impulse for a business cycle.
that unanticipated changes in aggregate demand trigger a business cycle.
expected changes in the quantity of money can trigger a business cycle.
all of the above answers are correct.
Suppose the government decided to pursue a policy of reducing the natural rate of
unemployment. Which of the following policies might it use? I. Reducing
unemployment compensation. II. Lowering the minimum real wage. III. Increasing the
inflation rate.
I only.
I and II
II only.
II and III
I, II and III.
Suppose that in Country A the opportunity cost of producing a car is 200 bushels of
grain and in Country B the opportunity cost of producing a car is 300 bushels of grain.
The equilibrium terms of trade (price of a car measured in terms of bushels of grain) is
most likely to be
200.
300.
500.
220.
180.
If an efficient country trades with the rest of the world, it ends up consuming at a point
inside its production possibilities frontier.
outside its production possibilities frontier.
on its production possibilities frontier.
either inside or on its production possibilities frontier.
either on or outside its production possibilities frontier.
Which of the following will lead to a depreciation of the U.S. dollar against the British
pound?
an increase in British demand for U.S. imports.
an increase in U.S. interest rates.
a decrease in British demand for U.S. assets.
a decrease in U.S. demand for British goods.
a decrease in British interest rate.
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